What Are Incoterms?
Incoterms (International Commercial Terms) are standardised trade terms published by the International Chamber of Commerce (ICC) and incorporated into commercial contracts worldwide. Each term defines the delivery point, which party bears freight and insurance costs, and precisely when risk transfers from seller to buyer. The current version is Incoterms 2020.
Incoterms 2020 — Insurance Obligations at a Glance
| Term | Full Name | Risk Transfer | Seller Must Insure |
|---|---|---|---|
| EXW | Ex Works | At seller's premises | No |
| FCA | Free Carrier | Named place to carrier | No |
| CPT | Carriage Paid To | First carrier | No |
| CIP | Carriage & Insurance Paid | First carrier | Yes — ICC A minimum |
| DAP | Delivered at Place | Named destination, not unloaded | No |
| DPU | Delivered at Place Unloaded | Named destination, unloaded | No |
| DDP | Delivered Duty Paid | Named destination, duties paid | No |
| FAS | Free Alongside Ship | Alongside vessel at loading port | No |
| FOB | Free on Board | On board vessel at loading port | No |
| CFR | Cost & Freight | On board at loading port | No |
| CIF | Cost, Insurance & Freight | On board at loading port | Yes — ICC C minimum |
CIF and CIP: The Two Insurance-Mandatory Terms
Under Incoterms 2020 only CIF and CIP place a positive duty on the seller to arrange marine cargo insurance.
CIF — Cost, Insurance & Freight
Reserved for sea and inland waterway transport. The seller must procure insurance on minimum ICC C terms. Risk passes once goods are on board at the loading port, but the seller's insurance obligation covers the entire transit to the named destination port.
CIP — Carriage and Insurance Paid To
Applicable to all modes of transport. A key change in Incoterms 2020: CIP now requires ICC A (all-risks) cover rather than the ICC C minimum previously assumed. This is a significant upgrade from CIF.
ICC Cargo Clause Comparison
- ICC A (All-Risks): Covers all risks of loss or damage except those expressly excluded. The broadest cover available and now the mandatory minimum under CIP.
- ICC B: Named-perils cover including fire, explosion, vessel stranding, jettison, collision and washing overboard — intermediate protection.
- ICC C: Minimum cover for major casualties only — fire, explosion, vessel stranding, collision. The mandatory minimum under CIF.
Frequently Asked Questions
Which Incoterms require the seller to arrange insurance?
Only CIF and CIP require the seller to procure insurance. CIF mandates a minimum of ICC C cover (sea transport only), while CIP — revised in Incoterms 2020 — now requires ICC A (all-risks) cover.
Who is responsible for insurance under FOB?
Under FOB, risk passes to the buyer once goods are loaded on board. From that point, insurance is the buyer's responsibility. The cargo should never be left uninsured.
What is the difference between ICC A, B and C clauses?
ICC A is all-risks cover — the broadest. ICC B covers named perils including fire, jettison and washing overboard. ICC C is the minimum, covering only major casualties such as fire, collision and stranding.
Under EXW, how can the buyer protect themselves?
Under EXW all risk from the seller's premises onwards lies with the buyer. The buyer should arrange comprehensive marine cargo insurance from the moment of collection.
Does the choice of Incoterm affect the insurable value?
Yes. Under CIF and CIP the insured value must cover the contract price plus 10% as a standard margin. For other terms, the buyer typically insures at invoice value plus freight and insurance costs.